U.S. CD rates are pathetic. Here’s a chart of what you can obtain in a CD today vs. the last four decades. Not that long ago, a simple $10,000 CD would pay 5% or more. Today, it’s only about 1%. So what can you do to get ahead in a financial environment where saving is not rewarded with any meaningful rate of return? The answer is that you have to break free of traditional investment options and look into alternative investments. One of the best of these are RV parks. Most RV park owners hit cash-on-cash return levels of 20%+. That’s a 20-fo-1 ratio on investment income vs. the status quo. Or, to put it another way, it would take you 20 years of interest with a CD to equal one year with many RV parks. If that kind of return power sounds of interest to you, then the RV park business model may be just what you were looking for.
Memo From Frank & Dave
What Can And Can’t Be Fixed In Turning Around An RV Park
Some people like to buy RV parks that are running perfectly. Others seek out properties that are operated very poorly, with the intent of buying them cheaply and then significantly raising revenue and cutting costs through better management. Between these two business models, everyone would agree that there’s more money in buying “broken” RV parks and fixing them than in buying “finished” properties. So what is the basic business model like in turning around RV parks?
Acknowledging your limitations
The first thing that you need to accept is that not all RV parks can be “turned around”. As Clint Eastwood once said in Dirty Harry “a man’s got to know his limitations.” And the same is true for RV parks. Some produce low levels of net income for reasons that cannot be improved on. Others can have their NOI tripled in year one. But only a fool things that they have the power to alter structural defects == like a bad location – through their own abilities.
What can be fixed
These are the items that can typically be fixed in any under-performing RV park:
- Poor marketing
One of the biggest misses many mom & pop owners make is not harnessing the power of the internet. It’s amazing how many RV parks lack a decent website – or any internet presence at all. These owners think that it’s still 1975 and their customers find them through signage and flyers at a tourist rest stop. Of course, today it’s all about finding the RV park on a simple Google Search of “RV parks in ______” and by having a highly compelling website that shows all the reasons you should stay there. But that’s not all. Many RV parks lack the simple basics of decent entry signage, or inclusion in clubs like Good Sam. There are very few RV parks in America that cannot have their marketing improved.
- Cutting unnecessary expenses
If you take the income statement of virtually any RV park, you can find go through the expense categories line-by-line and find things that should be eliminated or reduced. The biggest one for most RV parks is the payroll. But happens is that mom & pop spend the appropriate amount on labor three decades ago, and then kept increasing the wages annually until – at some point – things get out of control. We have seen properties with $100,000 per year managers that would normally be paid $40,000. Remember the impact of such mistakes. If you pay a manager $60,000 per year too much, that impacts the value of the RV park by $600,000 at a 10% cap rate.
- Rates below market
You would think that all RV park owners would constantly shop around and comp the competition, so that their rates are in-line with market. But the truth is that many moms & pops lose sight of market conditions at some point, and let their rates stagnant. We have seen rates that are 50% below market, simply because nobody bothered to stay up with the times. Raising rates is simple and – unless you go above the market – undetected.
- Unattractive property condition and visual appeal
This is one of the most troubling aspects to many RV parks – and the most easy to solve. It includes a lousy entry, a broken property sign, the fence falling down, giant potholes in the road, and general mayhem. The good news is that, unlike an apartment complex – the cost for bringing these issues back to life is relatively low. It’s amazing what you can do with some paint and a mower.
Can’t be fixed
There are some items that cannot be cured, regardless of how good a business person you are and how hard you work. These issues include:
- Bad geographic location
Successful RV park locations fit a need. These come in two styles: 1) destination and 2) overnighter. But some RV park locations do not fit either business model. They simply have not reason to exist, as nobody needs them. Don’t assume that the original builder of an RV park must have had a reason to build it. Sometimes, it was simply the case that the owner had a piece of land and had to invent something to do with it (even if it was a stretch). We have seen RV parks in locations that are so impossible to explain that it seems amazing that mom & pop could not see the fallacy in their decision to build there.
- Difficult access or visibility
Unless you are fortunate enough to have the highway department put in a new exit, or build a new road right by your property, or tear down whatever blocks the view of your park, then you are doomed with a property that has low visibility or difficult access. It’s basic common sense that nobody will put in a huge amount of effort to find an RV park that is invisible from the main travelled roadway.
- No operating permit
Every RV park in America had to get some type of permission from the state, county or city to have been originally constructed, as well as to continue in operation. You simply cannot buy an “illegal” RV park and succeed. Even if they don’t shut you down immediately, you will be unable to ever finance or sell it, so it’s value is negligible. The only types of RV parks you can buy are “legal conforming” and “legal non-conforming’ (grandfathered). Illegal RV parks – although really cheap in price – are a suicide mission.
- Certain private utilities
Humans need water, sewer and electricity in an RV park. While electricity is electricity, there are various type of municipal and private water and sewer systems. These can be hugely expensive to maintain and replace – in some cases more than the RV park itself costs. So make sure that you have a complete handle on where your water and sewer comes from, as well as what the future costs will be. You cannot manage your way around the state shutting down your sewage lagoon, nor can you find a $10,000 solution for a $500,000 sewer packaging plant replacement. You also cannot invent a creative way to make unsafe water potable.
Buying “broken” RV parks and “fixing” them is one of the most profitable segments of the industry, However, if you are going to engage in this business model, you have to identify the type of turnaround the property needs, as well as your ability to actually succeed at it. Some things can be easily overcome, and others should not be attempted.
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A Complete Analysis On How To Negotiate The Purchase Of An RV Park
So you’ve found the perfect RV park to buy. You love the location and size should fit your budget. There’s only one thing holding you back: the price. You don’t know what it will be yet. The seller says he’s interested, but the price has not been established. How do you start the process? Here are some observations and tips.
Let the seller name the price
You always want the seller to name the price for the simple reason that you hope it will come in too low. And because that is how it goes many times, the buyer typically wants to just stay silent for a few moments and see if the seller will blurt something out. One tip is to ask them “what the tax assessor say it’s worth?” because RV parks are typically notoriously undervalued for property tax. But if that does not go anywhere, it’s time for plan B.
Start low because you can’t go back
Remember that you can always go higher, but the seller will never allow you to go lower from your initial offer. So if you think the RV park is worth $500,000, then you would never want to offer $500,000. Why? Because the seller will always want to counter-offer higher. It’s called negotiation, and there are certain rules of the game that you can’t deprive the seller of. So instead you’d start at $450,000 or so, to give them room to counter and to think that they beat you on your offer.
Act like it’s too high even when it’s too low
In that example, when you offer $450,000 and they counter back at $480,000 – lower than the price you had hoped for – you would never say “OK that sounds good”. Instead, you should always pretend that the counter is way too high. You should say “ouch, that’s pretty high” to signal to the seller that they are doing a good job of negotiating and really beating you up. They like that. It also opens the door for you to counter again at a lower price.
Never say “I’ll take it”
And you would also never, ever say “I’ll take it” on their initial price offer. That’s an insult to them, as it makes them feel like they did not price the deal properly. You have to bring some Hollywood to the process and do a bit of play acting to make the seller feel like they should be proud of the job they did in negotiating the price. If you say “I’ll take it” to their initial offer, about half the time they’ll say “I’m not sure I really want to sell after all” so they can pull it back off the market and then put it on the market again with a higher price.
Have a cash vs. terms price
Here’ a tip if you’re trying to get seller financing. Instead of offering one price, offer two – one if the deal is in cash (bank financed) and the other if the seller carries the financing. Of course, the deal with seller financing is always a higher price, to encourage them to carry the paper. Many a great seller financing deal has started with this simple, but effective, mind game.
Don’t be afraid to hold firm
Some buyers feel rude to say “here’s the best price I can do” and refuse to go up any more. This is not, however, a bad negotiation tool. The seller is often looking for the highest price they can get. When you seem to be stuck and refuse to go any higher, they often seize the moment and stop trying. If you keep being agreeable at every price increase, they will think there is no limit and just keep on going until the price is impossibly high.
Bond with the seller
This is one of the biggest tools that exists in negotiating to buy an RV park: bonding with the seller. Basically, becoming their friend and having them like you. People naturally prefer to sell their properties to people that they like and respect. So spend time with them and do your best to be someone that it’s easy to sell to. Talk to them at length on the phone or in person. Always call them back promptly and never be late to a meeting.
Have a higher authority to buy time
A valuable tool for negotiation is to buy yourself some additional time to contemplate things. And an easy way to do this is to have a partner or group you have to get permission from. If you are buying the RV park on your own, it might not hurt to invent an “imaginary” partner to bounce things around with. That way you can tell the seller “that price works, let me get with my partner” and it gives you an out as well as extra time to consider the offer.
“No” is not an end but a beginning
When a seller says “no” they are not bringing the topic to an end, but only a new beginning. Many sellers initially say “no” and then later change their mind. It could be triggered by health problems, divorce, or just growing tired of running the RV park. But never take “no” for an answer. Just say “OK, I understand, but can I call you again in a month to touch base?” The seller will always say yes, and then you start all over again. We have bought deals in which we had been talking to the seller for years.
Stick with a win/win approach
If you asked what the most important trait is of good negotiation, it would have to be adopting and following a “win/win” approach to the process. That means that both the buyer and seller get a good deal and are happy with the result. We have learned that it’s fruitless to try and engage in win/lose negotiating (in which the buyer gets the seller in a corner and then lowers the price to take advantage) for the simple reason that most RV park sellers have no debt or financial strain and you simply can’t back them into a corner. Plus, it’s just not the right way to conduct business.
Get in the zone with America Pickers and Pawn Stars
If you want to get real-life practice every week, watch two shows on the History Channel: Pawn Stars and American Pickers. You will see all of the strategies listed above in every episode. It’s just non-stop back-and-forth negotiation on a huge number of items, and is probably one of the best studies of negotiation ever put on television.
Negotiating an RV park may seem awkward. There are no such classes in school. But the above tips will get you started on the right foot, and your good judgement will take it from there.
A Rare RV Makes Old Car Magazine
This unusual RV was recently featured in the popular collector car magazine “Old Car”. It’s the Ultra Van, which was built in the 1960s in Kansas. And what makes this RV unique is that it was assembled like an airplane, with no frame or chassis. It is 22’ long and 8’ wide, and had over 6’ of headroom, which was exceptional for that period. Powering this model was a 110-hp Corvair air-cooled engine and an automatic transmission. This futuristic RV had a bathroom and shower and featured a nearly king-sized bed. While you rarely see anything but cars in this magazine, it was interesting to see this unique vehicle that is similarly rare.
There Is A Revolution Going On In Park Models And It’s A Good Thing
Here is a park model I saw in front of a factory while I was driving down the road recently. It’s factory-built and HUD code. And it’s about a million times nicer than the older park models found in many RV parks today. In fact, there’s a revolution going on right now in park models and it’s great for the industry.
What is a park model?
A park model is a structure that is placed in an RV park and is rented by the night, just like a hotel room. Originally, these were geared to folks that wanted the RV park experience but didn’t own an RV. It’s an alternative to staying in a typical motel/hotel. It also allows people to attend family reunions and events at RV parks who do not own RVs or don’t want to tow them there.
What’s causing the revolution?
Shows on “tiny homes” on HG TV have fostered a renewed interest in small spaces, and park models are the focus of newfound appreciation by the American public. Whereas many factories shunned the production of these small units – preferring to build larger mobile homes – they are seeing a new product line with a lot of potential. And this race to produce new and better units is having huge benefits.
These new park models are head-and-shoulders superior to anything that has come before. They are spacious-feeling and incredibly well finished out. It’s amazing how much they pack into a small space. One way they accomplish this is with higher ceilings and lofts. But building fireplaces into the railings and other clever ideas were never there in the older units.
Better construction is here
If you go into one of those older park models at some KOA campground by a lake, you’ll notice how poorly they seem to be built. That’s because no large factory was in the business, and it was basically the same folks that build sheds for your lawnmower. Having professional builders yields well-built units that look great and last for decades.
Better pricing is here
Park models have never been cheap, but the new offerings are a much better value than in the past. And as competition heats up, the pricing should go down rather than up. In addition, the growth of manufacturing means that there are sources of park models spread out over the entire U.S., which leads to lower shipping costs.
The current revolution in park model design and construction will yield big dividends for RV park owners, as it attracts a wider range of customers and delivers a superior customer experience. We expect to see park models more widely accepted going forward, and being a larger mix of the average RV park income.